By Sandra Nebritova
Fintechs have been around for a long time now, but in the last three years, they have been the buzz of the financial industry.
Digital wallets, payment gateways, cryptocurrencies – the market has been changing immensely and rapidly.
The key to their success lies in innovation and, of course, convenience – the simpler the processes are for the consumers, the more attractive they are.
Innovation is always appealing, but it should be pointed out that when an industry grows, especially a financial one – it gets noticed by those who are likely to take advantage of it.
Fintechs are vulnerable to money laundering, fraud, and cyber-attacks just as any other traditional financial institution.
The online environment could even raise the risks higher, and some of these risks are unique for this industry.
What are the main challenges that FinTechs are facing?
Fraud
As the business model requires constant online access, it becomes vulnerable to fraudsters and cybercriminals.
Data theft, scams, transfer of confidential information, denial of service, malware – the list goes on.
Since the pandemic started, a huge number of consumers switched to an online life.
Zoom meetings, subscriptions to new apps, online shopping – apart from making it easier to live through the lockdowns-also attracted criminals who keep finding new ways to break into our digital world.
To prevent this, fintech must gear up with sophisticated software, firewalls and security policies and do whatever it takes to protect their consumers from such attacks so that we all feel safe while using their services.
Regulatory Risks
The industry has been developing fast, and at some point, the regulators could not keep abreast.
However, they are picking up the pace. There are new regulations and laws in the pipeline explicitly targeting fintech.
As new products and services emerge, those need to be analysed and risk-scored.
Sometimes, the company itself cannot grasp all the possible risks, so the regulators are trying to step up and set a benchmark.
Fintechs must continuously be up to date with any regulatory changes and ensure that any requirements are implemented into their processes.
The more compliant a business is – the fewer risks there are to run it into the ground, as lawsuits and regulatory fines can ruin any company.
AML Risks
No matter which services fintechs provide, whether it is payment gateways, card issuers, micro-loans – it is still in the financial sector.
These service providers are processing vast amounts of data and money transfers daily.
What made them so successful in the first place? The easy onboarding of clients.
Instead of spending hours filling in applications for banks and similar institutions and then preparing all the necessary documentation for weeks, fintech introduced a seamless process of onboarding the client.
But for this very reason, it might raise more concerns regarding money-laundering. Are the Know Your Customer (KYC) policies sufficient? Are the transactions monitored enough?
While everyone appreciates the fact that we do not need to spend all this time just to get accepted as a client, there still should not be any cutting of the edges.
Fintechs must make sure that their AML policies are effective and capable of spotting things that are not right and keeping any possible crime out of their business.
It is a difficult job, but as these companies are one of the most innovative ones, surely, they can make the most of their resources to tackle the task, understanding the importance of that.
So, is fintech here to stay and make our lives simpler?
It certainly is, if the risks are analysed and managed correctly – there is no reason to go back to the old ways.
Sandra Nebritova is a certified AML specialist
